Atradius Economic Research

Summary

� The general outlook has worsened now that GDP forecasts have been revised downwards in

the wake of the Brexit referendum and subdued global demand.

� Crédito y Caución forecasts 0% overall improvement in insolvencies in advanced

markets in both 2016 and 2017, the weakest performance since 2009.

Insolvencies in most advanced markets are expected to

show little to no improvement in 2016 and 2017

According to our insolvency forecast model, little to no

improvement is expected in business insolvencies in the

majority of advanced markets this year. The overall

outlook for insolvencies has worsened through 2016 in

line with downward revisions to GDP forecasts. Brexit is

likely to weigh on confidence in many advanced markets

and has created financial market volatility. Global demand

is expected to remain subdued, as low commodity prices

negatively affect economic growth in emerging markets.

In 2017 insolvencies are also anticipated to show little or

no improvement, which fits into the picture of a

weakening business cycle. Figure 2 and 3 summarize the

results by giving the percentage change in insolvencies

forecast per country for both this year and the next.

Figure 1 Insolvency developments matrix 2016 Vertical axis indicates trend, horizontal axis indicates level

Deteriorating

Austria, Canada,

Finland, New

Zealand

Australia,

Switzerland,

United States

Denmark, Greece

Stable

United Kingdom

France, Italy,

Luxembourg,

Portugal

Improving

NetherlandsGermany, Japan,

Norway, Sweden

Belgium, Ireland,

Spain

Low Average High

Source: Atradius Economic Research

Insolvency Forecasts

Commodity-rich countries like Australia and Norway will

continue to face headwinds in 2016 and 2017 following

the decline in commodity prices. While both countries are

making an effort to diversify their economies, and are

aided by depreciating currencies and loosening monetary

policies, bankruptcies for 2016 are forecast to increase by

8% in Australia and 2% in Norway.

The United States is projected to see a 3% rise in

insolvencies in 2016, which is a disruption of the

downward trend visible since 2011. Firms in the energy

sector are driving up aggregate insolvencies and weighing

on overall corporate profits. The Federal Reserve’s

tightening cycle could also make the business

environment more challenging by making commercial

loans more expensive.

Eurozone sees business failures improving from high

levels

Eurozone countries are forecast to see very modest

improvements in their business environments in 2016,

while most countries are still facing high annual levels of

corporate bankruptcies compared to 2007. Portugal and

Italy are expected to see a 2% decline in insolvencies this

year. However, this slight improvement is from levels

more than twice (Italy) or even four times (Portugal) as

high as before the crisis. Vulnerabilities to external

developments will put the brakes on improvements in

2017 in both economies, while systemic banking sector

problems may even reverse the trend.

Spain, on the other hand, followed by the Netherlands is

the best performer of the eurozone facing a 10% fall in

bankruptcies in 2016 (6% decline in the Netherlands) and

both countries can expect a further decline in 2017. Spain

is showing robust growth, though the economy is

recovering from a very low level. Business credit

conditions are improving and the drag on domestic

demand from deleveraging is expected to fade out.

Netherlands has faced economic difficulty as well in the

wake of the 2009 recession, but is going through a period

of catch-up growth mainly driven by higher domestic

demand. Another front runner is Ireland, which has seen a

strong improvement in insolvencies in earlier years, but

this is expected to face stagnation in 2017.

Bucking the trend is Greece, which is expected to face a

6% increase in business failures in 2016 followed by a

further moderate rise next year. While Greece’s economic

growth forecasts are slowly improving, the economy is

recovering from a very low level and the business

environment remains restricted by capital controls,

proving a difficult operating environment for small- and

medium- sized enterprises in particular. The insolvency

rate for 2016 is still a factor five of what it was in 2007.

Brexit results in worsening of the outlook

The decision of the UK to leave the European Union has

sparked a downward revision of GDP forecasts, which has

led to a worsening of bankruptcy projections in a number

of advanced markets. Insolvencies in the UK are projected

to rise by 2% in 2016 and by 3% in 2017. Brexit is already

weighing on confidence. UK’s PMI crashed into contraction

zone in July, falling to a level of 47.7 compared to 52.4 in

June, the lowest since April 2009. It seems likely that

Brexit will also impact confidence in many other eurozone

countries, particularly those with high exposure to the UK.

This is part of the reason why insolvency forecasts for

Ireland and Netherlands have been revised upwards. The

Brexit fallout is likely to extend to other European

countries as well, like Sweden, Finland and Denmark.

These countries will be struggling indirectly with the

economic slowdowns and loss of demand in other

European markets.

Atradius Economic Research

Table 1 Insolvency growth, percent change per annum

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Australia -4 18 3 -1 5 1 4 -22 10 8 5

Austria -6 0 9 -8 -8 3 -10 -1 -5 3 0

Belgium 1 10 11 2 7 4 11 -9 -9 -5 -2

Canada -7 -2 -12 -20 -11 -12 -2 -2 -1 4 -1

Denmark 21 54 54 13 -15 0 -10 -20 1 4 -1

Finland -1 16 25 -13 3 0 11 -11 -22 5 -1

France 7 8 14 -5 -1 3 2 0 0 0 2

Germany -15 0 12 -2 -6 -6 -8 -7 -4 0 0

Greece 0 30 40 30 33 30 10 3 10 6 3

Ireland 19 100 50 10 7 3 -19 -15 -10 -3 0

Italy -35 18 29 21 8 14 16 10 -6 -2 0

Japan 6 11 -1 -14 -4 -5 -11 -10 -9 0 2

Luxembourg 5 -13 17 33 5 8 2 -20 6 1 0

Netherlands -23 1 73 -10 -1 21 10 -19 -24 -6 -4

New Zealand -5 -35 45 -6 -12 -8 -13 -7 4 3 2

Norway -6 28 38 -12 -2 -12 20 -5 -7 2 0

Portugal -12 54 36 16 18 42 8 -9 12 -2 0

Spain 10 100 50 -2 14 38 13 -30 -25 -10 -4

Sweden -5 7 20 -4 -4 7 5 -7 -9 1 -1

Switzerland -5 -2 24 20 7 3 -5 -7 7 4 2

United Kingdom -5 24 23 -16 5 -4 -7 -6 -9 2 3

United States 2 52 41 -7 -15 -16 -17 -19 -8 3 -1

Sources: National bureaus, Atradius Economic Research. f=forecast

Table 2 Insolvency level, index

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Australia 100 118 121 120 126 127 133 104 115 124 130

Austria 100 100 110 101 93 96 87 86 82 84 84

Belgium 100 110 123 125 133 138 153 140 127 121 118

Canada 100 98 86 69 62 54 54 52 52 54 53

Denmark 100 154 238 269 228 227 204 163 165 172 170

Finland 100 116 145 127 131 131 145 129 101 106 105

France 100 108 123 118 116 119 122 122 122 122 124

Germany 100 100 112 110 103 97 89 83 79 79 79

Greece 100 130 182 237 315 409 450 463 510 540 557

Ireland 100 200 300 330 354 365 296 252 228 221 221

Italy 100 118 151 183 197 223 259 285 268 262 262

Japan 100 111 110 95 90 86 77 69 63 63 64

Luxembourg 100 87 102 135 141 152 155 124 130 132 132

Netherlands 100 101 175 158 156 189 207 167 127 119 115

New Zealand 100 65 94 89 78 72 63 58 61 62 64

Norway 100 128 176 156 153 134 161 152 142 144 144

Portugal 100 154 210 242 286 405 438 398 446 437 437

Spain 100 200 300 293 335 463 523 366 274 247 237

Sweden 100 107 128 123 117 126 133 123 112 113 112

Switzerland 100 98 121 145 154 159 150 140 149 155 158

United Kingdom 100 124 153 128 135 129 120 112 102 104 107

United States 100 152 215 199 169 142 117 95 88 90 89

Sources: National bureaus, Atradius Economic Research. f=forecast, index 2007 = 100

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